THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

LOU DOBBS, CNN ANCHOR: Thank you, Wolf. Tonight Mitt Romney drops out of the race for the Republican presidential nomination after a weak showing on Super Tuesday. Senator McCain appears certain to be nominated as the Republican Party's presidential nominee. We'll have complete coverage of that, what Romney's announcement means for the Democrats, all the day's news, much more, straight ahead here tonight.

ANNOUNCER: This is LOU DOBBS TONIGHT: news, debate, and opinion for Thursday, February 7th. Live from New York, Lou Dobbs.

DOBBS: Good evening, everybody. Former Governor Mitt Romney today declared he is abandoning the GOP presidential race for his party and for his country. Romney saying the stakes and the war in Iraq are too high to allow Democrats to take control of the White House.

Romney's surprise announcement today gives Republicans an opportunity to unite around front runner Senator John McCain, who immediately went on the offensive against the Democrats. Democratic presidential candidates Senators Clinton and Obama now facing a much more challenging presidential campaign. Clinton and Obama are locked in a potentially divisive battle for the Democratic presidential nomination, one that could last months.

We have complete coverage tonight and we begin with Dana Bash in Washington -- Dana.

DANA BASH, CNN CONGRESSIONAL CORRESPONDENT: Lou, we are told that it was actually yesterday when Romney was pouring over the data after Super Tuesday that he realized that despite a year of intense campaigning spending more $35 million of his own money, he simply wasn't getting enough return on the investment he made to keep his campaign going.

(BEGIN VIDEOTAPE)

(APPLAUSE)

BASH (voice-over): Mitt Romney's initial plan was to tell conservative activists here he is their best candidate, instead he announced he no longer is one.

MITT ROMNEY (R), PRESIDENTIAL CANDIDATE: Because I love America, in this time of war I feel I now have to stand aside for our party and for our country.

BASH: The businessman who prides himself on understanding numbers calculated his delegates just won't add up to a nomination and with an eye towards a future run made clear he didn't want to be a spoiler.

ROMNEY: I forestall the launch of a national campaign and frankly I would be making it easier for Senator Clinton or Obama to win.

(SHOUTING)

ROMNEY: Frankly, in this time of war, I simply can't let my campaign be a part of aiding a surrender to terror.

(SHOUTING)

BASH: The news stunned (INAUDIBLE) saddened the conservative crowd.

(SHOUTING)

BASH: A few hours later, a far cooler reception for John McCain, suddenly now vaulting for front-runner closer to presumptive nominee. He reported his phone call to Romney.

SEN. JOHN MCCAIN (R-AZ), PRESIDENTIAL CANDIDATE: The millions of people in our party who supported Governor Romney, I congratulate you, you did a fine job and you are welcome to join my campaign and...

BASH: But McCain's task of uniting the party filled with many who distrust him was on display.

MCCAIN: On the issue of illegal immigration, a position which...

(BOOS)

BASH: Some sat in protest with arms folded as he tried over and over to reassure them.

MCCAIN: And it is my sincere hope that even if you believe I have occasionally erred in my reasoning as a fellow conservative you will still allow that I have in many ways important to all of us maintained the record of a conservative.

(END VIDEOTAPE)

BASH: To be sure, McCain did get several rounds of healthy applause when he talked about his commitment to conservative positions and principles, like smaller government, lower taxes and even his opposition to abortion and Lou, talking to even some of the biggest skeptics here in the conservative movement here at this conference they said they do think McCain took a good first step in trying to rally them behind him -- Lou.

DOBBS: Terrific. Thank you, Dana. Dana Bash reporting. Former Governor Romney's announcement today presents a major new challenge for the Democratic presidential candidates after Super Tuesday. Both parties appear to be sharply divided, Republicans on ideology, Democrats on race, gender, class. Now Republicans are trying to bridge some of the differences while Democrats continue to struggle to select a candidate.

Suzanne Malveaux has our report from Chicago -- Suzanne.

SUZANNE MALVEAUX, CNN WHITE HOUSE CORRESPONDENT: Lou, the campaigns of both Senator Clinton and Barack Obama say that they are not focused on Mitt Romney but rather their own campaigns, but insiders in these camps are saying this dramatic development is worrisome because it could drain Democrats of resources and funds and ultimately could hurt the party.

(BEGIN VIDEOTAPE)

MALVEAUX (voice-over): Mitt Romney got out of the game charging the Democrats would fail to protect the American people in the war on terror. Senator Barack Obama fired back.

SEN. BARACK OBAMA (D-IL), PRESIDENTIAL CANDIDATE: That's the kind of poorly-thought-through statement that led him to have to drop out.

MALVEAUX: Both candidates acknowledge their new reality.

SEN. HILLARY RODHAM CLINTON (D-NY), PRESIDENTIAL CANDIDATE: It appears as though Senator McCain will be the Republican nominee...

MALVEAUX: But campaign insiders for senators Clinton and Obama say Mitt Romney's exit is bad news for both. While the Republicans now coalesce around their front runner John McCain, the Democratic candidates dig in for a long fight.

OBAMA: The children of New Orleans are America's children.

MALVEAUX: Senator Barack Obama in New Orleans unveiled his recovery plan for the city still struggling two and a half years later after hurricane Katrina.

OBAMA: We have to understand that Katrina may have battered the levees, but it also exposed silent storms that have ravaged parts of this city and our country for far too long.

MALVEAUX: He also shared a light moment over a bowl of gumbo.

UNIDENTIFIED FEMALE: (INAUDIBLE) we got to fatten you a little bit.

MALVEAUX: Obama is hoping this state including nearly half of its voters who are African American will deliver a good chunk of the 66 delegates up for grabs on Saturday's primary. Senator Clinton stumped in Arlington, Virginia, where she is confident she will capture some of the 83 delegates at stake there on Tuesday. (APPLAUSE)

H. CLINTON: Hello, Arlington. Hello...

MALVEAUX: Both camps are competing for big cash to keep their campaigns going in the months ahead after Clinton revealed she had to loan $5 million of her own money to her presidential campaign, aides announced after Super Tuesday a fund-raising blitz over the Internet brought in at least $6.4 million. Her loan has already been paid off. Obama's campaign says they have netted $7 million over the same period.

(END VIDEOTAPE)

MALVEAUX: Now the Clinton's camp is turning up the pressure on Obama for more debates. Clinton's campaign manager sent a letter today to her Obama counterpart challenging Obama to five more debates. One each week, leading up to the March 4th contest. Obama says he will do two because he needs to spend more time getting to know the voters -- Lou.

DOBBS: More debates, that's a good idea. Suzanne Malveaux, thank you very much. Suzanne Malveaux reporting from Chicago.

President Felipe Calderon of Mexico just can't help himself. He couldn't resist trying to again interfere in American politics and political life. This time in our presidential election in Calderon's latest efforts to influence the presidential campaign, Calderon declared that he hopes the next president will take what he called a quote, "broader and more comprehensive view -- get it -- comprehensive view of our illegal immigration crisis".

President Calderon telling the "Los Angeles Times" that, "The most radical and anti-immigrant candidates have been left behind and put in their place."

President Calderon will begin his first visit to this country as Mexico's head of state next week. That brings us to the subject of our poll tonight.

Are you pleased that Mexican President Felipe Calderon is pleased with the remaining presidential candidates? Yes or no. We'd love to hear from you. Cast your vote at Loudobbs.com. Results later here in the broadcast.

On Capitol Hill today, Republican and Democratic senators finally voting to support an economic stimulus package. The deal coming after Senate Majority Leader, Senator Harry Reid failed to win support for a package designed to advance his agenda. Senate Democrats finally realizing they couldn't put their partisan interests ahead of the interests of the American people and the need for a timely, timely economic stimulus package. Brianna Keilar has our report.

(BEGIN VIDEOTAPE)

BRIANNA KEILAR, CNN CORRESPONDENT (voice-over): After days of partisan wrangling, Senate Democrats and Republicans compromised on an economic stimulus package.

SEN. HARRY REID (D-NV), MAJORITY LEADER: The vast majority of the United States Senate agreed we have to change economic direction of this country. And we have done that.

SEN. MITCH MCCONNELL (R-KY), MINORITY LEADER: We are once in a while able to come together and do something important for the country with a minimum amount of partisan bickering and to do it in a timely fashion.

KEILAR: The Senate agreed to tax rebate checks. People earning between $3,000 and $75,000 would get checks between 300 and $600, couples earning up to $150,000 would receive a $1,200 rebate check and families with children would get $300 per child. The package also includes rebates for more than 20 million low income senior citizens and disabled veterans and a provision that's meant to block illegal immigrants from getting rebate checks.

Agreement didn't come easy. Democrats initially demanded a large stimulus plan including extended unemployment benefits and heating assistance for poor Americans, provisions Republicans opposed. But the bill also included the popular rebate checks for senior citizens and disabled vets and Senate Majority Leader Harry Reid insisted it was all or nothing.

REID: I think that if they this is a bluff wait until we have this vote and they'll find out if it's a bluff. I'm not much of a bluffer.

(END VIDEOTAPE)

KEILAR: But in the end, that larger package failed by a single vote last night. Senate Democrats had to give up some of their priorities to come to a compromise and now the House is expected to pass within the hour then it's on to President Bush who according to senior administration officials, Lou, will likely sign it next week.

DOBBS: One would hope that after the Senate finally did move with some expediency at least, despite the recalcitrance and the obstinacy of Senator Reid that the president would sign it immediately. This needs to happen. That's the whole point. It's not going to be perfect. There are all sorts of way to have improved it, but this money needs to move into the economy.

KEILAR: And I should point out, Lou that it's going to take a couple of days just because of logistical things, when you're sending legislation over to the White House, it takes a couple of days, but senior administration officials saying likely next week.

DOBBS: Brianna, and I love to hear Senator Reid say he doesn't bluff and it seems to me he was bluffing. I wonder what else he is that he says he isn't. Brianna, thank you very much. Brianna Keilar from Washington.

Coming up next rising concern about the increasing influence of foreign governments in the American economy. Christine Romans will have our report -- Christine.

CHRISTINE ROMANS, CNN CORRESPONDENT: Lou, America is on sale; foreign governments are flushed with cash. The dollar is weak. The economy is faltering here. So-called sovereign wealth funds have propped up the financial sector. We examine whether they are saviors or perhaps a threat to our sovereignty -- Lou.

DOBBS: I wonder about saviors. This is certainly faith based economics that the Bush administration has been following. We'll see. Thanks, Christine. We are looking forward to your report.

Also, a rising number of Americans becomes victims of violent crime, sweeping through border communities near the Mexican border. We'll have a special report for you. And one community in Connecticut defined the illegal alien lobby, the amnesty lobby and powerful ethnocentric special interest corporate America in the battle to uphold our laws against the impact of illegal immigration.

We'll have that story. It's a story of courage and independent thinking on the part of this community's leadership and make sure please that you stay with us for a special edition of LOU DOBBS TONIGHT coming up 8:00 p.m. Eastern, "Independents Day" right here on CNN, 8:00 p.m. Eastern.

We're coming right back. Stay with us.

(COMMERCIAL BREAK)

DOBBS: Another American community taking steps to deal with our illegal immigration crisis. Danbury, Connecticut's Common Council last night voting overwhelmingly to seek a partnership with U.S. immigration and customs enforcement under the so called 287(g) program, which trains local police officers to enforce U.S. immigration laws. Outside that meeting illegal aliens, their supporters voicing their opposition to the council's decision. Bill Tucker has our report.

(BEGIN VIDEOTAPE)

BILL TUCKER, CNN CORRESPONDENT (voice-over): This is what protests sounds like outside Danbury, Connecticut City Hall.

UNIDENTIFIED GROUP: (INAUDIBLE)

TUCKER: Anger over the city's decision to train its police in immigration enforcement, a stark contrast to the order and calm of the meeting inside.

UNIDENTIFIED GROUP: (INAUDIBLE)

TUCKER: Where residents spoke against the proposal to allow local police to check the immigration status of people arrested on suspicion of criminal activity. There were threats of economic ruin.

UNIDENTIFIED MALE: ... Already have seen many, many properties vacant at this point and we're going to see a lot more properties vacant if that law being approved tonight.

TUCKER: Some even compared it to apartheid in South Africa.

UNIDENTIFIED FEMALE: I know about that because I grew up in South Africa where people were doing exactly what you want to do in this country, in this town, where the police came and hounded people out of their homes.

TUCKER: Even illegal aliens were given the floor.

UNIDENTIFIED MALE: The reason why we're illegals is not because we want to be illegals. This country is making us illegals.

TUCKER: Council members were worried that people have been misinformed about the 287(g) program, which checks immigration status only after a person is arrested.

MAYOR MARK BOUGHTON, DANBURY, CONNECTICUT: There are some people jimmying (ph) people up on the sidelines, saying that there are all kinds of things that are going to happen with this program that frankly are not going to happen.

ROBERT ARCONTI, DANBURY CITY COUNCIL: Let me just read one part of this, "None of the programs provide for the unbridled arrest or detention of individuals involved in day labor, housing violations or related non-criminal activity." So what does that leave us with? Criminals.

GREGG SEABURY, DANBURY CITY COUNCIL: The city of Danbury cannot control the borders of our country. That's a federal issue. But by golly, folks, we can help to maintain the safety of the people in Danbury. That's our call. That's our task as councilpeopl.

TUCKER: The final vote made it clear that the council overwhelmingly agreed.

UNIDENTIFIED MALE: Nineteen ayes and two nays. The motion passes.

(END VIDEOTAPE)

TUCKER: Now there are two interesting points to be made here. One is the argument that was advanced by one speaker and a council member that the next administration in Washington is going to secure amnesty for illegal aliens so the 287(g) authority isn't necessary, Lou, and then two, according to the mayor's office, there were three buses of people brought into the city to protest the council meeting last night. They arrived late in the afternoon. They came to protest what was a local decision, one which presumably they had no interest in.

DOBBS: It's very clear what is going on. I mean we are watching everyone from the left ring radicals, socialists, workers attacking me, attacking any who would have our laws actually account for something in this country. But you've got to give great credit to the mayor, the city council, because they are speaking with reason and in my opinion with great judgment and when I hear these advocates for amnesty and open borders sitting there in the city council meeting in Danbury, Connecticut, illegal aliens themselves.

And people talk about bring them out of the shadows, illegal aliens in this country have marched in our streets, they show regularly to assemble, to protest against the enforcement of law and then you get to listen to someone say something like we're not illegal, this country made us illegal.

TUCKER: It's a variation of the argument we didn't cross the border, the border crossed us.

DOBBS: There is so much specious nonsense in this. There are so many efforts to obfuscate watchdog groups that have become advocacy groups, business groups that have become nothing more than an adjunct for the Mexican government in point of fact that the governments of Central American primarily. I'm referring to the U.S. Chamber of Commerce obviously. All of the socio-ethnocentric special interests, corporate America, everybody has got a representative here but the American people. Good for Danbury, Connecticut and its leadership, a measured reasoned response, a responsible approach to the community and the folks in Danbury, I think you're very fortunate to have the leadership you do in that town.

Well there are serious new concerns for Americans traveling in Mexico. A rising number of our citizens are becoming the victims of a violent crime wave in Mexico that is now sweeping into communities near our southern border, kidnapping, robbery, rape, even murder now occurring with alarming frequency. Casey Wian has our story.

(BEGIN VIDEOTAPE)

CASEY WIAN, CNN CORRESPONDENT (voice-over): The beaches of northern Baja, California, are a popular destination for Americans, especially those living just across the border in San Diego. Now the FBI says 26 San Diego County residents were kidnapped and held for ransom in Mexico last year alone, some were killed, others raped or beaten by organized kidnapping groups that the FBI says operate like terrorist cells.

KEVIN SLOTTER, FBI SPECIAL AGENT IN CHARGE: They are putting some thought into these kidnappings in both execution and understanding the victims themselves. It's our belief they have done at least some research on the person they are looking to potentially kidnap. It is not just somebody off the street.

WIAN: Slotter says the most disturbing trend involves Mexican kidnapping cells crossing into the United States, abducting victims and taking them to Mexico, but most kidnappings occur south of the border. The FBI says the typical victim is a middle class family man with business interest in Mexico and no connections to criminal organization.

The FBI says they are often pulled over while driving by heavily armed men posing as law enforcement. Their families in the United States are then contacted by phone with a demand for money. The U.S. Consul General in Tijuana two weeks ago issued a notice warning U.S. citizens to take precautions when traveling in the area. San Diego residents Pat Weber (ph) and Laurie Hoffman (ph) were attacked in Mexico during an October surfing trip. Their R.V. is still riddled with bullet holes.

PAT WEBER: Knock, knock on the door and there's two big guys in ski masks, darkly clad, paramilitary style clothing -- open up or I shoot. And then bam, the first shot comes in.

WIAN: Hoffman says she was repeatedly raped by the men, who also stole more than $10,000 worth of computer and video equipment. Weber and many other Americans are now refusing to visit Mexico because of the growing risk of violence. The FBI says Mexican authorities are cooperating and investigating the crimes, but say more cooperation would be helpful.

(END VIDEOTAPE)

WIAN: Neither the State Dependent nor the FBI could provide reliable statistics on the total number of Americans that are victims of kidnapping or other violent crimes in Mexico, in part they say because many of the crimes go unreported because victims fear retribution, Lou.

DOBBS: The State Department has had a warning for northern Americans traveling to northern Mexico now for some years.

WIAN: Absolutely. They are very specific about Americans going into some of these areas in Mexico, making sure that you don't go into areas that you are familiar with, don't travel alone, saying that person -- everybody's personal safety is their own responsibility and that Americans need to be increasingly vigilant when they are traveling into Mexico because there is so much lawlessness right now.

DOBBS: To the degree that this -- these kidnappings in particular are moving across the border into this United States, how concerned is the FBI and other law enforcement agencies particularly in San Diego County?

WIAN: That is the one aspect of the story that the FBI stressed repeatedly to me. They say that is the newest development here, the fact that they are actually brazen enough to come into the United States and kidnap their victims, that has the FBI very, very concerned. There have been kidnappings for years in Mexico, not as many as there are now, but the fact that they're crossing the border to commit these crimes and acting like organized terror cells is really scary, Lou.

DOBBS: It's scary. It's also -- to me it's even scarier the degree to which our elected officials and Congress, this administration ignore the fact that Mexico is the source of the most deadly drugs coming into this country, methamphetamines, cocaine, heroine and marijuana. The largest source of those drugs coming into this country and there is some discussion about how or whether we should be concerned about the security along our border with Mexico. Absolutely incomprehensible what this government is doing and what our elected officials are not doing. Thank you very much, Casey Wian.

Coming up, (AUDIO GAP) stimulus package supposed to give this sluggish economy of ours a boost. We'll be talking with one of the country's leading economist about how much that stimulus package will really help our middle class and this economy.

And are your tax dollars being used to build Iran's nuclear program? Well you may be surprised by the answer. That answer is in an upcoming special report. Stay with us. We're coming back.

(COMMERCIAL BREAK)

DOBBS: I suspect you're not going to believe at the outset a startling new twist in Iran's ambition to develop nuclear power and weaponry. Unbelievably, the U.S. government has been funding a Russian institute that is working with Iran on nuclear projects. Another clear failure of the American government to protect our national security and it's absolutely another statement as to the incompetence of our State Department and our foreign policy. Kitty Pilgrim has our report.

(BEGIN VIDEOTAPE)

KITTY PILGRIM, CNN CORRESPONDENT (voice-over): The U.S. Department of Energy is funding two Russian institutes with about $4 million and those institutes help Iran with their nuclear program in Bushehr. Evidence is found in Russian documents obtained by the General Accountability Office. Page after page shows various projects and one page reads "integration of plant-shared equipment at Bushehr Nuclear Power Plant is in progress". An Energy Department official at the House Energy Committee hearing today had no answers.

SAMUEL BODMAN, ENERGY SECRETARY: I have not had time to fully investigate but I have directed the principle deputy of the NNSA, Bill Ostendorf to look into those questions and to report back to me.

PILGRIM: He also added Bushehr is a commercial nuclear power plant not military.

REP. JOHN DINGELL (D), ENERGY & COMMERCE CHMN.: How, Mr. Secretary, do you then rhyme that statement with what the State Department said when they said this. Iran uses Bushehr as a cover and a protection for obtaining sensitive technology to advance its nuclear weapons program.

UNIDENTIFIED MALE: With respect to the Bushehr reactor, my understanding is that this is something we -- that the president has spoken to President Putin about, that the proliferation issues have been discussed and that reactor remains under IAEA safeguards.

PILGRIM: Nuclear nonproliferation experts say Russian help with Bushehr can be used in other projects.

HENRY SOKOLSKI, NONPROLIFERATION POLICY ED. CTR.: What the Russians are actually helping to do is to bring a large reactor online which can make scores of bombs worth of plutonium per year and we're hoping that the Iranians won't divert any of this material.

PILGRIM: The rationale for the Department of Energy program was to pay the salaries of Russian scientists who were left without incomes after the Cold War. The thinking was to keep them on the payroll so they wouldn't peddle their nuclear expertise to rogue nations like Iran.

(END VIDEOTAPE)

PILGRIM: Now the House Energy Committee can't believe that writing on the Web site only this administration would complain about proliferation in Iran as part of the President Bush's axis of evil and then finance it with American taxpayer dollars -- Lou.

DOBBS: This administration, everyone keeps talking about the legacy of this administration, well their legacy is mind-boggling, unbelievable, breathtaking, incompetence and stupidity. That is going to be the legacy of the Bush administration. Thank god that Congressman Dingell and Stupak are leading the way on this issue. I mean my -- how in the heck can a secretary of the Department of Energy, Samuel Bodman, even get up in the morning and think he has done anything but waste some of God's protoplasm if he can't run that department better than he is.

PILGRIM: Well, you know, just the answers today were astonishing. I don't know, we'll check.

DOBBS: Unbelievable. The arrogant, indifference and utter incompetence of this administration at every level. It is pervasive, it is shameful and the fact that the American people have had to put up with this and continue to do so, it's -- it's just incredible. That is just an unbelievable story.

PILGRIM: Yes, it is unbelievable. There will be more -- new developments, I'm sure, on this.

DOBBS: Any thought to, perhaps, changing the direction of policy at the Energy Department?

PILGRIM: They were defending the policy. They say that Russian institutes that participate in Bushehr are not disqualified from these funds. They were actually defending this policy today.

DOBBS: It -- when I suggested there was a change of policy, I didn't for a moment go into some sort of Polly-Anna lapse and assume that the -- anyone in the Bush administration be intelligent or sensitive enough to think about a change. But Congressmen Dangle, Congressman Stupak showing some considerable presence and, frankly, some forward looking consideration. Are they demanding they change?

PILGRIM: Yes, they are.

DOBBS: Kitty Pilgrim, again, terrific reporting, really a lousy story for those who care about this country. Thank you.

Well, time now for some of your thoughts. We are still hearing from a lot of you regarding my interview with Janet Murguia, the CEO of La Raza, who was claiming that my calls for an end to illegal immigration amount to, in the judgment of her organization, to hate speech.

Well, Judy in Pennsylvania said, "Lou you deserve a medal for putting up with that rude, obnoxious woman, let alone giving her a forum to spew her vindictiveness. She would make a preacher swear. I actually applauded you when you brought up free speech. I found it interesting that she wants to censor who you have on your show."

Well, I appreciate that. Janet Murguia, by the way, has been on this broadcast -- she is a woman who I respected and actually whom I'd liked for some years. But, what in the world has gotten into her organization -- is to me -- just -- it's unfathomable.

Many of you writing in about the current presidential candidates. Ron in Texas said, "Lou, all three leading presidential candidates are incumbent Senators and all are part of the existing problems in America. I see no change coming, only more of the same; broken borders, broken government and broken hearts. There is no viable candidate remaining that represents Middle America."

Sandy in Florida said, "Better be careful what you wish for, Lou. You are always wishing for this administration to end, but when I see what is coming along behind I'm not at all sure we will be any better off, possibly worse off."

Lets think about that. We'll have more thoughts here later in the broadcast. Each of you whose e-mail is read here receives a copy of my new book, "Independents Day: Awakening the American Spirit." And boy, oh boy, do we need some kind of awakening in this country.

Coming up next, the Senate, today, passed that economic stimulus package. How many people will it help? Will it help our homeowners, working men and women and their families? If so, when and how much? I'll be talking with Professor Laura Tyson, national economic adviser in the Clinton administration.

America on sale last night. We told you about the threat from Chinese espionage. We've been reporting on that issue here for years. Finally, the national mainstream media is awakening to our reporting and the reality. Tonight, we have a report for you on just how Communist China is trying to profit from our mortgage crisis.

Stay with us through the next hour, as well, for our special report: "Independents Day," 8:00 p.m. Eastern, right here on CNN. We're coming right back. Stay with us.

(COMMERCIAL BREAK)

DOBBS: And this just in to CNN. The economic stimulus package passed by the Senate now has enough votes to pass Congress. The vote is still underway in the House, it comes within hours of that Senate agreement. The House voting on those amendments, the Senate Democrats dropping their demands that the proposal include jobless benefits, heating and tax breaks for certain industry. The economic stimulus package does call for rebates -- somewhere between $600 and $1200 for most taxpayers.

But those rebate checks won't have to wait for the president's signature. Treasury Secretary Paulson has promised the IRS will get to work on those rebates as soon as this bill is passed by both houses. Congress has just done that.

As we have been reporting extensively on this broadcast, foreign governments are buying strategically critical American assets, and at an alarming rate. Foreign governments, including Communist China, have launched 20 new investment funds since 2000, holding an estimated $2 1/2 trillion.

A special commission, today, began hearing specifically on China's role. Christine Romans has our report.

(BEGIN VIDEOTAPE)

ROMANS: Some governments have a nice problem, as Senator Sherrod Brown puts it.

SEN. SHERROD BROWN (D), OHIO: What to do with all the money earned from their abundance of exports, whether it's from barrels of oil or from barrels of monkeys and other toys.

ROMANS: They are flush with cash. The dollar is weak, and the U.S. economy faltering. Those governments are on a buying spree, most recently pumping more than $35 billion into Wall Street banks, banks brought down by bad bets on risky mortgages. But also, in private equity and technology. Investments Wall Street and the U.S. government have embraced.

ROBERT DOHNER, DEPUTY ASST. TREASURY SEC.: The U.S. economy benefits from foreign investment, including investment from sovereign wealth funds.

ROMANS: But there are concerns about the size, growth and secrecy of some of these funds.

SEN. MARCI KAPTUR (D), OHIO: So many are run by undemocratic governments with powerful strategic objectives.

ROMANS: Senator Kaptur worries foreign government are buying influence and access to technology.

KAPTUR: These deals are presented as purely financial, when they are in fact political and strategic.

ROMANS: At issue at this hearing, China's $200 billion fund, ranking among the most secret funds in the world, according to an analysis by Standard Chartered Bank. Chinese central planners understandably want to diversify some of their $1.4 trillion in reserves. Most invested in U.S. government debt. But some are worried by widespread complaints of intellectual property theft, currency manipulation and export subsidies.

PETER NAVARRO, UNIVERSITY OF CALIFORNIA: China itself is likely to be a government that is likely to have a bad sovereign fund. It's not in the interest of the United States. And that -- tough regulations and oversight are need now in advance of a problem that has not yet emerged, but given the magnitude of the flow of funds over the next decade, it's going to be a serious one.

ROMAN: By the year 2015, some analysts predict that foreign governments' sovereign wealth funds could hold $10 to $15 trillion.

(END VIDEOTAPE)

ROMANS: The Treasury Department has asked the IMF to draw up a voluntary set of best practices for these funds. But so far, finds no reason to believe foreign governments are anything but legitimate, long term investors in the global economy. In fact, when listing the concerns about sovereign wealth -- on the top of the list is protectionism in the U.S. as a result of the lack of transparency.

Something that the Ohio delegation, Congresswoman Kaptur and Senator Brown, don't quite agree with it. They don't think it's protectionism to try to know what foreign governments are doing, as opposed to foreign companies.

DOBBS: Yes, I would -- this is not a particularly bright or deep or thoughtful administration, whether on economic policy or foreign policy. But one would hope that Secretary Paulson, and the rest of this administration, would have the sense to listen to Senator Brown, to Senator Dorgan, Congresswoman Kaptur, because they are thoughtful on these issues and, frankly, so much smarter than anyone that the Bush administration is putting forward on economic policy.

I can't imagine why they aren't taking their counsel very seriously. But the idea, the idea, that the United States government is turning to the International Monetary Fund to set standards for the sovereign wealth. This administration in so doing has basically just said it is incapable, through either our Department of the Treasury, our Department of Commerce or at the White House, to come up with its own standards and regulations for this economy. These people -- do they have any concept of what fools they look to be?

ROMANS: I can't speak for them. But I can say that many of the sovereign wealth fund managers have said that they want to make sure those guidelines are voluntary only, that they are not set in stone, that they are voluntary. Anything --

DOBBS: We wouldn't want to impose on anyone -- American law, for goodness sake. This administration would not have that. It would be unseemly us I think.

Christine, thank you very much. A very sobering report. Christine Romans.

Well, joining me now for more on the increase of sovereign wealth fund investment in this country and the direction of this economy at a -- and the timely, I think, we'll see what she says -- I think it's a timely passage of the economic stimulus package. Professor Laura Tyson is at the School of Business, University of California, Berkeley. Professor Tyson also former national economic adviser under President Clinton. Professor Tyson, joining us tonight from Berkeley.

Professor, it's great to see you.

LAURA TYSON, PROFESSOR, UNIVERSITY OF CALIFORNIA, BERKELEY: Nice to be with you, Lou.

DOBBS: All right, lets start with the economic stimulus package. Finally the Senate and its Democratic leadership, forgive me for pointing that out, coming to their senses and actually getting this thing through. Are you pleased?

TYSON: I am pleased. I think it's very important to have a timely and targeted response to the economic slow down. I think some of the things the Senate Democrats wanted to add were very valuable and sensible, but at the end of the day it's important to get this done, and now with this consensus, we'll be able to move quickly.

DOBBS: Yes, I happen to, just for the record, concur with you exactly. The idea of fine tuning something like this, the timing is critical, as you point out.

Lets turn to the issue of this economy and how -- how deep, how critical you judge this dislocation to be. How much pain are we in for?

TYSON: Well, I -- I'm quite worried. And I think that, actually, the fact that we got such quick coming together, in a bi- partisan way, to pass something like this suggests that there is also a great concern out there.

So we have now on going very aggressively monetary policy bringing interest rates down. We'll have a fiscal stimulus that's large enough, about one percentage of -- one percent of GDP will add about one percent of GDP for two consecutive quarters. It's a sensible policy. But I suspect we're really going to need more.

I think that a number of observers have said that monitoring fiscal policy alone cannot address the crisis of confidence in the capital markets, and cannot -- cannot contain the contagen (ph) effects coming out of the housing sector. So we need more.

DOBBS: And that more would look like what? Because as you say, there is a contagen of a crisis of confidence that is extending first from -- there is a great, great concern about the lack of national leadership in this country, whether it's at 1600 Pennsylvania or on Capitol Hill. The economic team does not seem to have the respect of either the international or domestic business community.

TYSON: Well, I think what we're hearing is -- we're hearing a growing number of voices to -- of the need to fashion something which is out of the box. Now, basically, if you look at the comments, even of someone like the FDIC director, Shelia Bair, if you look at now the conversations going on in the Senator Dodd's committee and the Senate or Barney Frank's committee in the House, people are talking about a process of bringing large amounts of loans that are scheduled for interest rate resets or that are under water and are going to be foreclosed upon.

And we're talking about not hundreds of thousands, but millions. That we need a process to restructure these loans. We're going to need to have a voluntary, we hope, effort by the servicers working with the government authorities to take these assets and restructure them. And that will mean converting them to longer term mortgages, mortgages that don't have interest rate resets. There is the concept of a freeze here. There is the concept of restructuring these assets.

DOBBS: Professor Tyson, as you and I both know, the issue here, again, is one of timing and there is no sense of urgency that I can detect in either Congress and the part of this administration, in any department of this government. And I cannot for the life of me understand way, because the numbers are staring us in the face. We are looking at very serious, serious stresses on the financial sector, particularly commercial banking, in this country.

TYSON: Yes -- I agree. What I would say is that we have, in the month of December, so we're now in February, but we did have, for example, one of the candidates, the candidate I support, Hillary Clinton, did come out early on in December and called for an interest rate, a moratorium on foreclosures and a freeze.

The -- Secretary Paulson came a few days later with a voluntary program which turned out to have so many loopholes in it that virtually nothing has changed in the number of loans being restructures. As I said, now you do have serious action going on in the House and Senate. A number of think tanks in Washington, the Center for American Progress, that I'm associated with, coming up and -- proposals. I think there will be action. I think the urgency is recognized.

DOBBS: I think -- I hope you're right. I wish we could take it beyond partisan -- presidential candidates and their concern. You're quite right, Senator Clinton was first among all of the presidential candidates to take -- to put forward a plan. But those plans are proposals and abstractions because they are not part of government as this point.

So, we always appreciate the opportunity to talk with you and we hope that that urgency that you detect in Washington turns out to be manifest, and soon. Thank you.

TYSON: Thank you, Lou.

DOBBS: Coming up here next, a pioneer in the local community effort to deal with our illegal immigration crisis. Hazelton, Pennsylvania's mayor, Lou Barletta joins us here to talk about his political future and ours. And the United States wants our NATO allies to provide more troops in Afghanistan. They don't want to. General David Grange will join me to talk about that, and what we ought to do about that. Stay with us. We're coming right back.

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DOBBS: Hazleton, Pennsylvania Mayor, Lou Barletta, is a leading figure in the local community battle against our illegal immigration crisis. Mayor Barletta now wants to take the fight all the way to Washington, announcing today that he is running for Congress. Mayor Barletta joins me now.

Mayor, good to have you with us. What made you decide to run for Congress?

MAYOR LOU BARLETTA (R), HAZELTON, PENNSYLVANIA: Lou, they told me that I can't do what I'm doing in fighting illegal immigration as the mayor of a small town. So, I decided I'm going to take that fight to Washington where I can do something.

DOBBS: Well, let's talk about what you did do while you were there. You got the ordinances passed, they're tied up in court, I don't know about the situation -- want to ask you very quickly. But I do know, after that battle and everything that has happened about three months ago, you had the nomination of both the Democratic and the Republican parties for mayor and you won 90 percent of the vote. That doesn't sound like too bad of an outcome.

BARLETTA: Well, I think it sent a clear message to Washington how the American feel -- American people feel about illegal immigration and what I am doing here to fight it.

DOBBS: Well, as you talk about running for Congress, we're watching now, Senators McCain and Obama, and McCain and Governor Mike Huckabee. Only Huckabee amongst them saying that he would be at all serious about dealing with the impact of illegal immigration. What is your thought on the presidential campaign?

BARLETTA: Seeing what is left for the presidential race, Lou, I think it's all that more important that I go to Washington and make sure that my voice is heard and how I feel and seeing the impact that illegal immigration is having on -- on cities in America. And I think I bring a different perspective in dealing with that problem and I'd rather be one voice, one candle than sit in a room that is dark.

DOBBS: At this point, how do you judge the way that Congress is going to go? I know you're focused on your own race there. But Congress has not distinguished itself, certainly the Republican leadership, nor in my opinion, the Democratic leadership, over the past year. What are you going to -- what is going to be your appeal to voters to support your candidacy?

BARLETTA: Well, it's very clear. I believe America needs leaders who have the courage to go to Washington and fight for the American people, fight for what is right. Someone who is not afraid to go up against his own party if he has to, his own president, but someone who will go there and fight for the people that sent him there. Washington is broke, we all agree. We need to go in a different direction. But we need leaders who have the courage to stand up and do it.

DOBBS: You're going to have a tough battle. We'll ask for your projection on the outcome? BARLETTA: Well I am, Lou. And I set a Web site up, LouBarletta.com for those around America that want to help me get to Washington to fight, because it will be a tough fight. But I'm prepared to do it. I haven't backed down in the last year and a half, and I won't back down to this challenged. And I'll fight as hard for the American people in Washington as I did in Hazleton.

DOBBS: Very quickly, but if you will, what are the other issues besides illegal immigration that you're going to be running on?

BARLETTA: Well, the economy obviously is one of the major problems. People are finding it harder and harder to make ends meet, Lou, working two jobs. And, again, health care, social security, Washington is broke and they need new leadership.

DOBBS: Lou Barletta, looking to be part of that new leadership. We thank you for being here, Mayor Barletta.

BARLETTA: Thanks, Lou.

DOBBS: Coming up next, will NATO help the United States in Afghanistan? One of the country's most decorated former military commander's, General David Grange joins us here next.

Stay with us. We're coming right back.

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DOBBS: Defense Secretary Gates tonight is in Lithuania for a critically important NATO meeting. Secretary Gates asking NATO to provide more combat troops in the war in Afghanistan. But most NATO nations refusing to send additional troops, and that is raising questions about whether NATO is still relevant, or, viable.

Joining me now, General David Grange, one of this country's most decorated former military commanders.

General, good to have you with us. Why in the world should a U.S. secretary of defense have to go hat in hand to NATO? It's unseemly, it's unbeielvable ?

BRIG. GEN. DAVID GRANGE (RET.), CNN MILITARY ANALYST: Yes, I don't look as hat in hand. I think it's kind of like a signal to get one with it. Here you have an alliance of collaborative partnerships, made up of these countries that all have to provide their share of resources to include equipment money and fighting troops to accomplish interests that effect all of us.

DOBBS: Well, yes. And that's been the case for decades. The reality is, we've got about 85,000 troops over there. We've got 57,000 in Germany. What in the world are we doing? Who in the world decided that this was going to be in purpituity a nation that policed Europe?

GRANGE: Well that's a couple hundreds less than we used to have. And they're crying right now because of all the U.S. troops that have been pulled out of there. Now we do want some there, Lou. Because there's basis there and other needs that we have to accomplish our missions. So we don't want to get that number too low in Europe.

DOBBS: You know what? I do want to get it lower. I want those troops home and I want NATO and I want the European Union to be big boys and girls and pay their own way in this world. And I want the United States quit being the world's sucker, as well as the world's policeman.

GRANGE: I agree. And I hope Secretary Gates can give them a warning and the president follows it up. And if -- maybe you ought to restructure NATO if they can't get it organized .

DOBBS: Well lets you and I go to work on it.

GRANGE: All right.

DOBBS: All right.

General Dave Grange, as always. And I understand the Freedom Museum had a poll on the presidential election. High school kids voting. How did that come out?

GRANGE: It came out very well. Obama, of course, was the winner on the Democratic side and McCain on the Republican side.

DOBBS: All right. I love the way you say of course. You're not in Chicago there, are you?

GRANGE: I'm on the perifory right now.

DOBBS: Dave Grange, thank you very much.

Still ahead, the results of our poll. Stay with us.

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DOBBS: Here are the poll results you've been waiting for -- 90 percent of you responding that you are not pleased that Mexican president Felipe Calderon is pleased with our remaining presidential candidates. That's our poll. We thank you for responding. Stay with us. Special edition of Lou Dobbs tonight about to begin, "Independents Day." It starts right now.

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